The risk and rewards of minimizing shortfall probability -: The risk may be worthwhile.

Dynamic investment strategies that minimize the probability of a shortfall relative to a given target return or other investment goal are useful in a variety of economic and risk management settings, but the author argues that some properties of these strategies are misunderstood. For example, some advocate minimizing shortfall probability as a risk management tool by claiming that it reduces investment risk. This is not always the case, and, indeed, the author shows that dynamic strategies incur substantial risk-taking. There are also substantial rewards associated with these dynamic strategies, and for those who do wish to take the associated risks, the author argues that there is a very simple way to implement: the dynamic strategy namely, by purchasing a digit option with a specific set of parameters. This result allows a decision-maker to make some definitive quantitative comparisons that aid in the understanding of risk.